How To Pay Off Your House In 9 Years

Is it possible to pay off your 30 year mortgage in just 9 years? Of course it is and it is not as hard as you think.  But first, lets see why this is a good idea.

Do you know how much interest you pay on an average 30 year note?  No?  Let me give you an example:

Suppose you buy a house for $220,000 and you get a mortgage for $200,000 for 30 years at 6% interest rate. 

In 30 years you will have paid a total of $431,677.  Ouch!  You paid more than double the price of your house.

Now let’s say you bought the same house and got the same $200,000 mortgage at 6%.   Your monthly payment will be $1199.

How much do you think it will take to pay off that house in 9 years?  Tens of thousands of dollars a month?  How about $5,000 a month more?  Nope.  This is the formula:

Double your monthly mortgage payment and you’ll pay off your house in 9 years.

How much did you save in interest?  Just $172,245!

That’s right.  In this example, sending the bank an additional $1,199 a month will have you house debt free in 9 years.  What’s amazing is this formula works no matter what your mortgage payment amount is.  If you’re only paying $800 month, an additional $800 will do it.

I know, I know, your finances are redlined and you bought more house than you should so you can’t afford to send double the monthly payment.  Ok, how about one third more?

Again, instead of sending in $1,199 on your 30 year $200,000 mortgage you send 1/3 more or $400 more a month.  Now you pay off your house in 16 years and change.  This formula works for any mortgage amount.

Yeah so you really messed up and can only send a tenth or a measly $120 more a month.  Well that gained you a little over 6 years of payments so now you payoff your house in 24 years instead of 30.  Not a big deal right?  Well it still saved you $28,164 in interest over the term of your loan.

So there you have it, send in that extra principle and watch your nest egg grow!

Ps. Check out http://www.mortgageloan.com/calculator/mortgage-payoff-calculator and enter your numbers to see how fast you can pay that mortgage off

 

Is Now a Good Time to Buy?

Time and time again I hear the same question, "Is now a good time to buy Real Estate"

Here's a general principle that can you can use to make profitable deals whether it is Real Estate, stocks or gold coins: Always go against what the masses are doing. 

When everybody is bullish and making money on Real Estate/Stocks you should sell.  When everybody bearish and losing their shirt on Real Estate/Stocks you should buy.

However, that is not what you or your neighbor do is it?  When home prices go down you get scared and do nothing.  You’re afraid to buy because of all the foreclosures around you, homes being sold for half price, and so on.

Yet when houses were being sold in two days and when you had to compete in a bidding war to get any house you had no qualms in buying.

My friend, if you do what everybody else is doing you’re going to get the results everybody else is getting. 

In general, this is the best time to buy real estate since the 80s.  Cash flows on rental properties are at all time highs.  Houses are being sold for pennies on the dollar.  What is stopping you?

Consider also this.  Would you buy a dollar bill for $0.70?  Of course you would, all day long.  So any time you can buy a house worth $100,000 as is for $70,000 it’s a good buy.

Get out there and buy some real estate for pennies on the dollar!

Should You Buy a House?

A post back we determined that a house is not really an asset or an investment.  It just drains more and more money directly and indirectly.

So the question is, should you buy house then?

The answer is absolutely yes.  You should own your own home. 

Well if a house is not an asset or an investment why should you buy one?

The house may not be your best investment but it is your best forced savings plan.  In the long run homeowners will almost always outperform renters in terms of net worth.

Lets run this scenario.  You decide to rent for the next 10 years so you get a nice two bedroom apartment for say $1,000 a month.  After 10 years and spending $1,000 / month * 120 months = $120,000, what do you have to show for it?  Nothing, nada, zip.

Some smart readers might point out that the money that you saved by renting could have been invested at a 8% return and thus could amass a small fortune.  Yeah that would be the logical thing to do… if you’re a Vulcan (Star Trek geek coming out).  How many renters really invest the difference?  Do you know any?

Now lets take scenario B.  You decide to buy a house and live in it for the next 10 years.  The house is $150,000 and costs you $1,500 a month in mortgage, taxes and insurance.  The payment is high but you manage and you stick with it for 10 years.

After 10 years and assuming a very conservative 3% appreciation that $150,000 house is now worth about $201,000.   Right off the bat you made a real capital gain of $51,000 by literally sitting on your ass-et.

But it gets even better.  If you put %10 down on the mortgage at 6% and owed 90% or $135,000 at closing, after 10 years your balance is now $112,731.21 or about $22,265.79 less.

Even gets even sweeter than this.  All that mortgage interest and taxes you paid on the house are tax deductible.  The savings on this is considerable and will vary depending on your income, number of dependents, etc.

So without counting tax savings, after 10 years of home ownership you made $51,000 of capital gains + about $22,000 in loan pay down or about $73,000.    Owning a house in this scenario made you $73,000 richer after 10 years.  That’s equivalent to saving $400 a month and making it grow at an 8% interest in the same amount time.

In summary, you should own your home for no better reason than to force you to save and not spend it away.  The pride of owning your home… priceless.

You're Probably Sabotaging Your Goals by Just This One Action

Have you ever had a great plan or a dream that you wanted to accomplish?  Did you share it your friends, family, loved ones?

I'm going to guess that you didn't and instead you kept it to yourself.  You might have told your wife but that's about it.

Why is that?  Have you ever thought "there's this thing I want to do but I don't want to tell anyone in case it doesn't happen".  Sure you have.  Often you don't even tell yourself but keep it recessed in the back of your mind.

I believe we all fear sharing our most wild and exuberant plans because if we don't accomplish them we'll look like fools.  We dread the conversation that starts with "what ever happened to your plans to xxx", or "didn't you say you wanted to become a xxx"?

This innate fear is actually a great tool. It is precisely this fear of failing that can help you succeed.  If you have a goal you want to accomplish then telling as many people as you can commits you to getting results.

For many of us the fact that we told someone that we were going to do x or y, is that last push that helps us get over the obstacle and accomplish our dream.

The next time you have a great plan or a great goal, tell as many people as you can.  If you want to be truly committed make a bet like shaving your head if you don't go through with it.

The key here is that you should not be focused on the outcome but rather on the attempt itself. If you had a goal to make $100,000 in a year but only made it to $95,000 did you really fail?

It's better to aim high and miss than to aim low and hit.  

Is a House really an investment?

Lets get this clear. An investment doesn't eat money every month, it generates money.

If you invest in a dividend paying stock or bond it will generate cash for you every month/quarter/year. You don't need to pay the stock or bond to produce. If you send money to a fund every month it goes to buying additional shares of that fund.

If you have an income producing residential rental property your net of your rent minus mortgage, taxes, insurance, etc. will hopefully be a positive cash flow to your pocket every month.

Now lets look at your house. After paying mortgage, insurance, taxes, etc. does it pay you back every month? Not a chance. To add insult to injury that house eats up a lot in decorations, furnishings, upgrades, etc.

The fact that your house may go up in value after a few years does not make it an investment. That's speculation. It's just like buying bare land holding it for years and hoping it goes up one day.

A year ago you might have argued that house prices are going up, up, up. It was tough to sit in the sidelines in Houston while homeowners in the East and West coast were getting 'rich'. Well now that we're back to normal we can assume a historical average of 4% annual appreciation.

With 4% appreciation and after deducting all the expenses associated with a house it can hardly be considered an investment per se.

Does that mean you shouldn't buy a house? Not at all. I believe in the long run homeowners will always come out ahead financially vs renters albeit for different reasons.

So yes, even after all I said go out and buy a house. I'll explain why in the next post :-)

This one belief is probably keeping you from being rich

Do you find it hard to save $$?  

Why is that?  Well on the surface the answer is pretty easy “I don’t have enough money left after my expenses”.  I hear you.  However, I think deep down your subconscious beliefs are what really keeps you from saving.

So here you are staring at that nice new golf club/TV/killer purse/Wii/etc and $500 are just burning a hole in your pocket.  You know you should save that money but your subconscious is telling you that if you stash away that $500 they will just go in a black hole never to be seen again.  

You then talk yourself into it by thinking “pleasure now, or pleasure later when you retire and are too old to enjoy it anyway…”    Sound familiar?

Most of us have been conditioned to think that saving means stashing away money and never seeing it again.  I think most of you know it by the name of 401k. We know our savings are growing (hopefully) but somehow it just doesn’t feel like real money.

Here’s an idea: Invest in vehicles that pay you now.   Huh?

If you had a $25,000 investment making you a 10% dividend you’d be pocketing $2,500 a year, every year.  Think about that.  It’s like getting a $2,500 bonus check year after year for not doing anything.

If you know that every $500 you invest will pay you $50 back every year would you be more inclined to invest?  That golf club doesn’t look that attractive any more does it?

What's Better, to Save a Dollar or Earn a Dollar?

Would you rather earn a dollar for your products or services, or save a dollar when buying or not buying something?  Sure this seems silly but the implications and ramifications of this question extend beyond just one dollar.  

Lets say you save a dollar.  Ok that's one dollar less I would've spent. Simple. 1$ = 1$.

Now lets look at earning a dollar.  I have one more dollar in my pocket right?  Well, actually no.  That dollar you earned is actually taxable.  You'll have to pay income taxes, social insecurity taxes, fica, etc.  Your dollar earned is actually worth only $0.80 or so.

Now instead of a dollar make it $10,000 or $100,000.  It makes a big difference eh?

ps. The trick here is earned.  There are some ways you can make a dollar without paying taxes or at least deferring them indefenitely.